Works Contract Provisions under VAT/CST and GST 24th May, 2013

Report
Intensive study course on Service tax
Point of Taxation Rules
Presented by:
Ca. Jayesh Gogri
Organised by:
Nashik branch of WIRC-ICAI
7/17/2015
CA Payal Shah
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Point of Taxation...
•
Why Point of Taxation Rules, 2011 (POTR) are required?
– Nature of services
• Goods vs. Services
– Rule 6 of Service Tax Rules, 1994 (STR)
• Pay Service Tax by 5th / 6th/ 31st of next Month/Quarter: Immediately following the
month/quarter in which the service is deemed to be provided as per the rules framed in
this regard
– TRU Circular No. 334/3/2011-TRU dated 28th February, 2011
– Rule 2(e) of the POTR:
• “point of taxation” means the point in time when a service shall be deemed to have been
provided
– In nutshell, it determines following two important points for crystallising Service
tax liability:
– Date to levy tax
– Rate of tax
•
If POTR are introduced from 1st July, 2011, what was the position earlier???
– Receipt basis vs. accrual basis
– Optional for the period from 1st April, 2011 to 30th June, 2011
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…Point of Taxation…
• How to determine Rate of Taxation (ROT) and Point
of Taxation (POT) generally?
– Section 67A of the FA:
• Date of determination of ROT, Value of taxable service and Rate of
exchange
– Rate of ST
– Value of a taxable service &
– Rate of exchange
» “Rate of exchange” means the rate of exchange referred to in
the Explanation to section 14 of the Customs Act, 1962 (52 of
1962)
• Notified every fortnightly
shall be the one in force or as applicable at the time when the
taxable service has been provided or agreed to be provided
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…Point of Taxation…
– Rule 3 of POTR
• Either of 2 dates, whichever occurs first:
– Raising of invoice
» In case the realisation in excess upto Rs. 1,000/• Option to the assessee: POT as on the date of raising
invoice
• If option adopted: No requirement to issue
supplementary / fresh invoice for such petty amount
– Receipt of payment
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…Point of Taxation…
• Exceptions:
– Date of Completion of service: If the invoice is not issued
within the period specified under Rule 4A of the STR i.e. 30
days
» Circular No. 144/13/2011-ST dated 18th July, 2011
• All Auxiliary services such as measurement, quality testing
etc. should also be completed which enables SP to raise
invoice
• No intentional delay for issuance of invoice by taking
undue advantage of non-completion of such auxiliary
services
– Individuals and partnership firms having a aggregate value of
taxable services provided>= Rs. 50 Lakhs in previous FY:
Option to pay Service tax on receipt basis till taxable services
provided upto Rs. 50 Lakhs in current FY
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…Point of Taxation…
• What is the concept of “continuous supply of services”?
– Means any service which is provided, or to be provided:
• Contract for a period exceeding 3 months:
– Continuously or on recurrent basis
– With periodic payment terms
• Two notified services: Notification No. 38/2012-ST dated 20th June,
2012
– Telecommunication services
– Service portion in the execution of works contract
– In case of continuous supply of service where the provision of the whole or
part of the service is determined periodically on the completion of an event in
terms of a contract, which requires the receiver of service to make any
payment to service provider, the date of completion of each such event as
specified in the contract shall be deemed to be the date of completion of
provision of service
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CA Payal Shah
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…Point of Taxation…
• Mr. Akkalmand is a works contractor. Accordingly, he was
paying Service tax under Composition Scheme
• With effect from 1st July, 2012, there was a paradigm shift
under Service Tax Laws and the Composition Scheme was
removed from Service Tax Laws
• Mr. Akkalmand adopted the valuation as required under Rule
2A of the Service Tax (Determination of Value) Rules, 2005
• What is the impact of this change on Mr. Akkalmand?
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…Point of Taxation…
• Is there a change in effective Rate of Tax?
– Rule 2 (ba) of POTR
“change in effective rate of tax” shall include a change in the portion of
value on which tax is payable in terms of a notification issued in the Official
Gazette under the provisions of the Act, or rules made thereunder
– Rule 4 of POTR
2 of 3 events
• Service provision
• Invoices raised
• Payments received
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…Point of Taxation…
Particulars
Services
provided prior
to change in
Effective ROT
Services
provided after
change in
Effective ROT
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Invoice
raised
Payment
received
Date of
Payment
Date of
Invoice
Earlier of
dates of
payment
or invoice
Effective
Rate of ST
Prior
Prior
√
10.30%
Prior
Later
Later
Prior
Later
Later
√
12.36%
Prior
Prior
√
10.30%
Prior
Later
Later
Prior
Later
Later
√
10.30%
√
10.30%
√
12.36%
√
12.36%
√
CA Payal Shah
12.36%
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…Point of Taxation…
– Circular No. 162/13/2012-ST dated 6th July, 2012
• Continuous supply of services
– Governed by rule 6 until 31st March, 2012.
– The rule started with the wordings “notwithstanding anything
contained in rules 3, 4 …” Therefore, the point of taxation in respect
of services provided in terms of the said rule on or before 31st March,
2012 would remain unaffected by rule 4.
– Invoice issued or payment received on or before 31st March, 2012:
POT as per Rule 6 of POT and shall not alter due to the subsequent
changes effective from 1st April, 2012
• Effective Rate prior to Negative List of Services vs. Effective Rate
post Negative List of Services
–
–
–
–
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If now taxable @ 40% : No change in effective ROT
If now taxable @ 60%/70% : Change in effective ROT
If now taxable, earlier exemption : Change in effective ROT
If now taxable, earlier not taxable: No change in effective ROT
CA Payal Shah
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…Point of Taxation…
• What is meant by the date of payment?
– Rule 2A of POTR
• Earlier of following two dates:
– Date of entry in books of accounts
– Date of credit in bank account
• Exceptions:
– Date of payment = Date of credit in bank account when
» Change in effective ROT or service taxed for first time:
• Situation arises between the date of entry in books of accounts
and date of credit in bank account
• Credit in bank account after 4 working days from such dates
» Payment by way of Cheque, PO, DD etc.
– If any rule requires determination of the time or date of payment
received, the expression “date of payment” shall be construed to
mean such date on which the payment is received
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…Point of Taxation…
• What if in the earlier case, Mr. Akkalmand’s services are taxed
for the first time post Negative List of Services?
– Rule 5 of POTR
Beneficial provision
Exception to the basis of levy of ST i.e. provision/rendition of services
No service tax payable if:
• Invoice as well as payment are received before service became taxable
or
• If payment received before service became taxable and invoice issued
within 14 days from the date, services became taxable
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…Point of Taxation…
• Exercise
Date of
completion of
services
Date of Invoice
Date of Payment
Point of taxation
10.07.13
20.07.13
30.08.13
20.07.13
10.07.13
15.08.13
30.08.13
10.07.13
10.07.13
20.07.13
15.07.13
15.07.13
10.07.13
15.08.13
05.07.13 (Part)
&
25.07.13 (Remaining)
05.07.13 (Part)
&
10.07.13 (Remaining)
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…Point of Taxation…
• Is there any specific rule for reverse charge and/or partial reverse charge
mechanism?
– Rule 7 of POTR
• POT = Date of Payment
– If payment is not made within a period of 6 months from the date of invoice:
» POT: Date of invoice issued
» If invoice is not issued within 30 days:
• POT=Date of completion of such service
» Interest & Penalties: Section 76, 77, 78
» Offence & Arrest provisions
» Practical issues
• What are the provisions for import of services from Associated
Enterprises?
– 2nd Proviso to Rule 7 of POTR
• Earlier of following two, would be POT:
– Date of debit in BOAs of service recipient (Indian) or
– Date of making payment
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…Point of Taxation…
• Mr. Maaldaar, a Chartered Accountant, was engaged in providing CA
services
• CA services was a specified service under Rule 7 of POTR and accordingly,
was leviable to ST @ 10.30% on receipt basis
• W.e.f. 1st April, 2012, Rule 7 of POTR was amended to remove 8 specified
services, including CA services and the rate of ST changed to 12.36%
• Mr. Maaldaar had already raised certain invoices charging ST @ 10.30%
before 1st April, 2012
• Since services were already provided by Mr. Maaldaar, taking 2/3 concept
of Rule 4 of POTR, Mr. Maaldaar paid ST @ 10.30% to Government
Treasury
• Whether Mr. Maaldaar is correct in his approach.
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…Point of Taxation…
• Prior to 1st April, 2012, POT = Date of payment for following 8 specified
services:
–
–
–
–
–
–
–
–
Architects
Interior decorators
Practising CAs
Practising CWAs
Practising CSs
Scientific & Technical Consultancy
Legal services
Consulting Engineer services
• Circular No. 158/9/2012-ST dated 8th May, 2012
– POT = Date of payment as per earlier Rule 7 of POTR
– Issue supplementary invoice for additional 2.06%
– Eligible for CENVAT Credit subject to fulfilment of conditions under CENVAT
Credit Rules, 2004 (CCR)
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…Point of Taxation…
• Delhi Chartered Accountants Society (Regd.) vs. Union of India
2013 (29) STR 461 (Del.)
– Circular quashed as contrary to Finance Act, 1994 (FA) and POTR
• Can this judgment be applicable to Maharashtra State?
• Ratio can be adopted
• Not binding in nature
– Circular is erroneous in prescribing that invoices issued on or before
31st March, 2012 continued to be governed by Rule 7 of POTR as it
stood before 1st April, 2012, since w.e.f. that date old Rule 7 of POTR
was no longer in existence
– Situation is governed by Rule 4(a)(ii) of POTR
• 2/3 concept: ST should be charged @ 10.30%
– CBEC Circulars have to be in conformity with Act and Rules and if not,
they cannot be enforced
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…Point of Taxation
Other miscellaneous Rules:
• Rule 8: Royalties for copyrights, trade marks, designs or patents
– Whole consideration not ascertainable while performing the services:
Services deemed to be provided each time on earlier of following two
events:
• A payment is received by SP in respect of use or benefit received by a person
other than SP or
• An invoice issued
• Rule 8A: Best judgment assessment by department
– Where POT cannot be determined according to POTR, 2011
• Rule 9: Transitional Provision
– Applicable for existing assessees following POTR w.e.f. 1st April, 2011 or 1st
July, 2011
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